Dollar Falls Against Mark, Yen; Dow Off : Markets: Analysts blame G-7 inaction for the weakness in U.S. currency. Yields on 30-year Treasury bonds rise to 7.73%.
The dollar plunged Monday to its lowest level against the German mark since late 1992 and hit a post-World War II low against the Japanese yen after the United States and its allies failed to devise a plan to stabilize the greenback.
Meanwhile, Treasury bond yields rose, forcing prices lower amid expectations that the economic reports due out this week will show faster growth and rising inflation, leading to higher interest rates. Stocks followed the dollar and bonds lower.
In New York, the dollar was quoted in late trading at 1.530 marks, down from 1.563 on Friday. The U.S. currency fell to 97.75 yen, the lowest close since the late 1940s, from 98.05.
The dollar dipped for the first time below 97 yen around midday, but it recovered later on concerns about the leadership succession in North Korea and Japan’s uncertain political situation.
Analysts attributed the weakness in the dollar, which also fell sharply against other major currencies, to the apparent lack of concern for its persistent slide shown by leaders of the Group of Seven at their weekend summit in Naples, Italy.
Although traders had not expected any coordinated G-7 action to support the dollar--such as adjusting official interest rates to favor the U.S. currency or the nations directing their central banks to intervene--the failure to even mention exchange rates in the group’s final statement was taken as a sign that the economic powers are leaving the dollar’s fate to the market.
Dealers said trading volume was fairly light as few large banks entered the market, exacerbating the dollar’s downward trajectory against European currencies. Much of the activity was speculative, they said.
In the bond market, the yield on the Treasury’s key 30-year bond rose to 7.73% from 7.69% on Friday. Its price, which moves in the opposite direction, dropped 11/32 point, or $3.44 per $1,000 in face value.
Analysts described bond trading as light, with many participants taking a breather after Friday’s heavy activity as they awaited government reports on producer inflation today and on consumer inflation Wednesday.
Bond prices plunged and yields soared Friday after the government reported stronger-than-expected job growth last month. The report sparked fears that strong economic growth will fuel inflation, which erodes the value of bonds.
The falling dollar Monday added to those worries, since a drop in the greenback’s value tends to lead to higher prices for products imported into the United States.
Michelle Laughlin, an economist at the Sanwa Securities unit of Tokyo-based Sanwa Bank Ltd., said market participants worldwide are worried that the Federal Reserve Board has not raised interest rates fast enough this year to try to curb inflation.
“All market indexes right now signal a Fed policy that’s too accommodative,” Laughlin said. “The Fed is behind the curve in fighting inflation. We have produced more dollars than individuals desire to hold.”
Stock investors do not like rising interest rates because they increase corporate costs and make fixed-income investments relatively more attractive.
On Wall Street, the dollar’s slide pulled blue chip stocks lower, ending a five-session advance.
The Dow Jones industrial average ended 6.15 points lower at 3,702.99, recovering on late buying from a session low of 3,681. Declining issues outnumbered advancers by about 9 to 8 on the New York Stock Exchange on light Big Board volume of 222.97 million shares. On Friday, 236.52 million shares changed hands.
Broad market indexes fell. The NYSE composite index fell 0.61 to 247.50. The Nasdaq composite index of mostly smaller companies fell 0.63 to 706.83. The Standard & Poor’s index of 500 stocks fell 1.49 to 448.06.
Among the market highlights:
* Eli Lilly said it will buy McKesson Corp.’s PSC Health Systems Inc unit. Lilly, which said it will probably have to borrow about $2.5 billion as part of the planned $4-billion purchase, shrank 7 3/8 to 50. McKesson soared 24 3/4 to 98.
* American Cyanamid rose 1 3/8 to 57, aided by an upgrade from Lehman Bros. to “buy” from “outperform.”
* First USA dropped 2 3/4 to 37 1/2. The company said it had acquired the contracts and most of the assets of Electronic Processing Source Inc. for First USA common stock.
* Dell Computer said it will stop selling products through retail stores. Its shares closed up 13/16 to 28 7/8 in Nasdaq trading.
* Consumer stocks faltered. McDonald’s lost 1 1/8 to 28 1/2, IBM fell 1 to 55 5/8, and Eastman Kodak slid 7/8 to 48.
Gold rose $3 to $387.10 an ounce on the New York Commodities Exchange.
Gold stocks followed gold prices higher. Placer Dome rose 1/2 to 20 1/2.
Foreign markets had little effect on Wall Street. Tokyo’s 225-share Nikkei average finished off 53.42 points at 20,473.09, and Mexico City’s Bolsa index fell 22.77 points to 2,292.
In Frankfurt, the DAX 30-share average closed at 2,065.66, up 14.81 points, and London’s Financial Times 100-share average rose 21.4 points to 2,983.8.
